TCS on Sale of Goods: What Happened to Section 206C(1H)

If you are a business that sells goods and remembers configuring your billing system to collect TCS above a Rs 50 lakh threshold, you may be wondering whether that obligation still exists. It does not. Section 206C(1H) of the Income-tax Act, the provision that required a seller to collect tax at source on high-value sale-of-goods receipts, was omitted from the statute effective April 1, 2025. This post explains what the provision used to require, why the government removed it, and what governs these transactions now.

What Section 206C(1H) Used to Require

Before its repeal, Section 206C(1H) applied to a seller whose total sales, gross receipts, or turnover from the business exceeded Rs 10 crore in the preceding financial year. Such a seller was required to collect TCS, at a small fraction of a percent, on the amount received from a buyer above Rs 50 lakh in aggregate during the financial year, for sale of goods (with specified exclusions such as export sales and goods already covered under other TCS/TDS provisions). The seller then had to deposit the TCS, issue a TCS certificate, and report it in the quarterly TCS return, Form 27EQ.

The provision was introduced to widen the tax net by creating an information trail on large goods transactions. In practice, it sat alongside another provision aimed at the exact same class of transactions from the opposite direction.

The Overlap With Section 194Q

Section 194Q required a buyer whose turnover exceeded Rs 10 crore in the preceding year to deduct TDS on the purchase of goods from a resident seller, once purchases from that seller crossed Rs 50 lakh in the financial year. Both provisions were aimed at the same broad transaction class: high-value goods sales between businesses above the Rs 10 crore turnover threshold.

Where both a buyer and a seller crossed their respective thresholds on the same transaction, the law provided that Section 194Q would take priority and Section 206C(1H) would not apply, so double taxation at source was avoided by design. But applying that priority rule correctly in practice was its own compliance burden: sellers had to actively confirm whether the buyer was in fact liable to deduct TDS under Section 194Q before deciding whether to collect TCS themselves, and mismatches between what a seller expected and what a buyer actually deducted were a recurring source of notices, Form 26AS/AIS reconciliation issues, and disputes between counterparties over who was responsible for the compliance.

Why the Government Removed Section 206C(1H)

As part of a broader rationalisation of TDS and TCS provisions, Section 206C(1H) was omitted with effect from April 1, 2025. The stated rationale was straightforward: since Section 194Q already captured the same transactions from the buyer's side, retaining a parallel seller-side TCS provision added compliance cost without adding meaningful additional information for the tax department. Removing the seller-side leg simplifies the position for both parties to a transaction, eliminates the priority-rule reconciliation that businesses previously had to perform on every large sale, and reduces the volume of TCS returns sellers needed to file purely for this class of transaction.

This fits a pattern visible elsewhere in recent Budgets: where two provisions target the same underlying transaction from different sides, the government has generally preferred to retain the buyer-side TDS obligation (which ties the deduction to the person actually making the payment) and drop the seller-side TCS mirror.

What Applies Now: Section 194Q Governs These Transactions

For any sale of goods on or after April 1, 2025 that would previously have triggered Section 206C(1H), the compliance obligation now sits entirely with the buyer under Section 194Q. If your business purchases goods and your turnover and purchase value from a single seller cross the prescribed thresholds, you as the buyer must deduct TDS at the time of payment or credit, whichever is earlier, and report it through the standard TDS mechanism. If you are the seller, you no longer have any collection, certificate, or return obligation under this head for these sales.

For the current mechanics of Section 194Q, including the threshold, rate, timing of deduction, and how it interacts with GST on the invoice, see our detailed guide: Section 194Q: TDS on Purchase of Goods. That is now the single provision to consult for high-value goods transactions between businesses; there is no separate seller-side rule to cross-check against.

Practical Clean-Up for Businesses

If your accounting or billing system still has logic configured to auto-apply TCS under Section 206C(1H) on invoices crossing Rs 50 lakh, that configuration should be switched off for the current and future financial years; continuing to charge it on customer invoices creates an unnecessary reconciliation problem for both sides even though it is not fraudulent. If you are a seller who collected TCS under this provision for FY 2024-25 or earlier, that TCS remains valid and should be reflected correctly in the buyer's Form 26AS/AIS and your own TCS return for that period; the repeal has no retrospective effect. Going forward, sellers should simply confirm, as a matter of good practice, that their buyers are in fact deducting TDS correctly under Section 194Q, since that is now the only compliance check left in this transaction chain, even though the seller carries no direct obligation.

Other TCS provisions under Section 206C, such as those on scrap, minerals, motor vehicles above a specified value, foreign remittances under the Liberalised Remittance Scheme, and overseas tour packages, are separate sub-sections and are entirely unaffected by this repeal. Only the specific sale-of-goods TCS under sub-section (1H) has been removed.